Despite relatively turbulent market movements this Thursday in particular, following a number of different central bank meetings, gold prices did not fluctuate dramatically over the course of the week. They did at least manage to recover from the minor “shock” dealt by the US Federal Reserve, whose Chair Jerome Powell last week announced a decisive fight to tame inflation by hiking interest rates.
Headwinds from the interest rate front
Two other central banks also surprised the markets this week, reminding them that the low interest rate period is gradually coming to an end. Both the Bank of England and the European Central Bank met yesterday. While the BoE raised key interest rates by 25 basis points to 0.50 per cent, as expected, and was just one vote shy of a surprisingly significant rate hike of 50 basis points to 0.75 per cent, the ECB for its part is not even ready to start raising key rates. However, ECB President Christine Lagarde did open the door for such a move at her press conference – it having previously seemed firmly closed – and more than just a crack. The markets responded by pricing in the first interest rate increases, also by the ECB, starting this year. Eurozone government bond yields rose considerably, as did the euro.
Weaker dollar and stock market lull creating tailwinds
Although interest rate hikes normally create a headwind for gold prices, in this case they benefitted from a weaker US dollar as the week progressed. Yesterday's stock market slide likely also boosted gold prices.
As of just last Friday, the price of gold had dropped from 1.798 US$ per ounce in the morning to 1.780 at noon due to rising capital market rates in the US, but advanced this week to 1.811 by Wednesday. This morning, the precious metal is trading at 1.807 after ups and downs in yesterday’s trading.
Xetra-Gold price under pressure
The Xetra-Gold price, on the other hand, came under some pressure as a result of yesterday’s significant appreciation of the euro. Xetra-Gold was still trading at 51.90 € per gram at the end of last week but had fallen moderately by noon yesterday. It then retreated to 50.50 following the ECB meeting. Today’s trading of Xetra-Gold is likely to start at 50.70.
After numerous monetary policy meetings and decisions, the week closes today with US labour market data scheduled for release. However, the markets can be expected to continue their focus in the coming week on the supposed next moves of the central banks and the market impact these will have.
I wish all readers a pleasant weekend.